HOME loan rates are at all-time lows, but with economists insisting that this situation cannot last, some homeowners are wondering if they should fix their mortgage rates now.

The European Central Bank (ECB) is expected to start pushing up the base rate from its current level of 2% next year. Once it does, anyone with a variable or tracker mortgage will find themselves paying more.

“Rates are at a 50-year low and lenders have yet to price in the anticipated hike from the ECB,” said Dan McLaughlin, the chief economist at Bank of Ireland. “We’re at the bottom of the cycle and mortgage holders should be aware of the opportunities available. Rates have risen in Britain and America already. It’s a matter of time before they rise in Europe, too.”

Jean-Claude Trichet, the head of the ECB, is expected to add half a percentage point over the next 15 months to the base rate.

Oliver Mangan, the chief bond economist at Allied Irish Banks, believes that now is a good time to fix your rate. “You won’t get much better than what’s being offered by lenders at the moment,” he said. “Interest rates will rise in anticipation of the ECB hike, so borrowers should lock in for a minimum of three years or a maximum of five within the next month or two. Anyone who waits until the hike is announced will have to pay for their tardiness.”

According to McLaughlin, rates will begin to creep up next spring. He believes we will see an increase of a quarter of a percentage point early next year and another quarter of a percentage point in the last quarter of the year. By late 2007, he says, the ECB rate could stand at 3%.

“The ECB is nervous about the level of lending across the eurozone,” said McLaughlin. “The rising cost of the European property market is also a cause for concern. Trichet wants a rise to prevent these factors from worsening.

“The price of oil and the political uncertainty in Germany are delaying the ECB from taking action, but it will make a move and interest rates will certainly go up some time next year.”

These warnings may well tip the balance for those considering a fixed-rate product, but there are plenty of other incentives. Three lenders cut their three- and five-year offerings this month. Permanent TSB, IIB Homeloans and EBS lowered their fixed rates by 0.21- 0.6 percentage points.

Tracker rates have remained the same because the ECB rate has not budged for almost two years. Tracker mortgages remain the most competitive on the market because they shadow the ECB rate by up to 1%. They have hovered 0.4-0.6 percentage points below their variable counterparts.

James Byrne, a partner at Ezhome.ie, says mortgage holders who do not want to fix their rate should steer clear of variable deals and opt for a tracker instead. “Over the past 10 years tracker mortgages have offered considerably lower rates than variable-rate homeloans. The question is: should you fix or opt for a tracker? Forget variable rates entirely.”

The benefits of tracker mortgages become obvious when monthly repayments are compared. For example, a person with a 20-year €500,000 loan from AIB who has a variable-rate mortgage will pay €2,848.68 per month, but only €2,798.08 per month with a tracker. The same person would currently pay €2,964 for enjoying the certainty of a fixed rate.

IIB Homeloans and AIB are among the most competitive providers of three-year fixed rates for a person with a 20-year €500,000 loan. They quote 3.55% and 3.49% respectively. Their variable rates are 3.5% and 3.35% respectively for the same home loan, while their tracker rates are only 3.17% and 3.1%.

The current low price of fixed rates means that an AIB customer with a €500,000 loan switching from a variable to a fixed rate will pay €50.60 extra a month — a small price, perhaps, for peace of mind.

Byrne advises homeowners with large mortgages who are anxious about the cost of fixing their interest rate now to consider locking in a portion of their loan.

“If a person has an €800,000 mortgage, they can leave €400,000 on a tracker loan and lock the remaining €400,000 into a fixed rate,” he said. “It’s a form of hedging your bets. Anyone who has recently bought a property and is heavily exposed to rising interest rates should certainly consider doing this.”

Mortgage holders should consider their options carefully, advises Byrne.

A property owner who cannot afford to take the risk of the ECB hiking its rate by 1% is probably best advised to choose a fixed-rate product. However, a tracker mortgage would suit somebody who is not financially stretched and who can afford to take a punt on the ECB’s movements.